EDITORIAL: The conference co-hosted by Pakistan, represented by Prime Minister Shehbaz Sharif and a team of federal ministers and chief minister Sindh, and the United Nations Secretary General Antonio Guterres was a success with more than 9 billion dollars pledged by multilaterals and bilaterals against Pakistan’s target of 8 billion dollars.
Credit is evidently due to the strong case for climate justice presented by the Pakistani team, particularly Sherry Rehman and the Prime Minister, that has resonated globally and would hopefully ensure that all pledges are disbursed.
The largest pledge of 4.2 billion dollars was made by the Islamic Development Bank headquartered in the Kingdom of Saudi Arabia, fuelling speculation that this was the outcome of a joint civilian and military diplomatic effort and therefore may include the long requested deferred oil payment facility.
Other pledges however need clarification with some pledges that appear to have been made earlier. On 25 September 2022, World Bank’s Vice President Martin Raiser pledged 2 billion dollars in aid to Pakistan “as an immediate response”, adding that the money would be available from “repurposing funds from existing World Bank-financed projects to support urgent needs in health, food, shelter, rehabilitation and cash transfers.” On 21 October ADB tweeted that it “approved 1.5 billion dollars in financing to support people, livelihoods and infrastructure in Pakistan in the wake of the recent floods which have affected millions and caused extensive damage across the country.” This loan is to be provided under Building Resilience with Active Countercyclical Expenditures (BRACE) programme provided under ordinary capital resources, or non-concessional funding.
In other words, 3.5 billion dollars out of the nine billion dollars (39 percent of total pledges) was not only already pledged but also carry a rate of non-concessional interest.
In addition, clarification is also required as to whether pledges made during the conference by bilaterals were over and above what has already been disbursed, mostly in items required by the flood victims including tents, etc., though Minister Andrew Mitchell stated during the conference that the UK was allocating 9 million pounds from its Pakistan budget to tackle the impact of flooding bringing the total funds committed to 36 million pounds.
Prime Minister Shehbaz Sharif sought a pause in implementing harsh upfront International Monetary Fund’s (IMF’s) conditionalities for the success of the pending ninth mandatory review before the release of the next tranche that would unlock assistance from bilaterals as well as other multilaterals; however, he would do well to take cognizance of two prevailing sentiments at the conference.
One, the statements made by Raiser and Andrew Mitchell while pledging assistance focused on three elements that the government must ensure: (i) rehabilitation efforts must focus on mitigating measures against a possible recurrence of climate-related disaster; (ii) assistance must be targeted towards those who most need it, the poor and vulnerable, perhaps a reference to the decision by finance minister Ishaq Dar in October 2022 to extend a 110 billion rupee unfunded electricity subsidy to exporters which was referred to as a “regressive” measure by the IMF Director of Middle East and Central Asia Department Jihad Azour who did not attend the conference and instead sent his deputy Arvanitis; and last but not least (iii) to implement reforms to ensure an equitable, fair and non-anomalous tax structure, with the agreed IMF’s personal income tax reforms not yet fully implemented that had the salutary objective of ending the elite capture of resources, and to reform the appallingly poorly-managed power sector.
In addition, the 1.8 trillion rupee agricultural package is also unfunded and the fact that over 1.3 trillion rupees are to be in the form of loans by the commercial banking sector will strengthen and not weaken elite capture as banks are not likely to extend loans to subsistence farmers with no collateral.
And secondly, the country’s economy is plunging into an ever deepening ravine with plummeting foreign exchange reserves, with the continuation of the flawed policy of keeping the interbank dollar rate artificially low that is increasingly being attributed to the finance minister rather than the Governor State Bank of Pakistan irrespective of the autonomy granted to the Bank a year ago.
Hence, the capacity of the current economic team leaders to steer the country out of the current economic impasse is in question.
The Deputy IMF director Arvanitis noted that he met with Ishaq Dar who reiterated the commitment to complete the Fund programme; however, he added that “it was a good meeting but I do not have any statements to make” — a statement that disturbingly does not indicate one step forward. One can only hope that the PDM government reverses all policy decisions that are in blatant violation of the spirit of the IMF programme before seeking to engage with the mission team on the ninth review.
Copyright Business Recorder, 2023